3 AAC 21.256. Mortgage loans and real estate for a life and health insurer

(a) A life and health insurer may acquire, hold, or invest in an obligation secured by a mortgage on real estate situated within a domestic jurisdiction either directly or indirectly through a limited partnership interest or general partnership interest not otherwise prohibited by 3 AAC 21.216, a joint venture, stock of an investment subsidiary or a membership interest in a limited liability company, a trust certificate, or another similar instrument. A life and health insurer may not acquire, hold, or invest in a mortgage loan that is secured by other than a first lien unless the life and health insurer is the holder of the first lien. An obligation held by a life and health insurer and any obligation with an equal lien priority may not, at the time of acquisition of the obligation, exceed

(1) 90 percent of the fair market value of the real estate if the mortgage loan is secured by a purchase money mortgage or like security received by the life and health insurer upon disposition of the real estate;

(2) 80 percent of the fair market value of the real estate if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period of 30 years or less, and has periodic payments made no less frequently than annually, subject to the following:

(A) each periodic payment must be sufficient to ensure that, at all times, the outstanding principal balance of the mortgage loan will not be greater than the outstanding principal balance would be under a mortgage loan with the same original principal balance, with the same interest rate and requiring equal payments of principal and interest with the same frequency over the same amortization period;

(B) a mortgage loan permitted under this paragraph is permitted notwithstanding that the loan provides for a payment of the principal balance before the end of the period of amortization of the loan;

(C) for a residential mortgage loan, the 80 percent limitation may be increased to 97 percent if acceptable private mortgage insurance has been obtained; or

(3) 75 percent of the fair market value of the real estate for a mortgage loan that does not meet the requirements of (1) or (2) of this subsection.

(b) For purposes of (a) of this section, the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the United States Department of Housing and Urban Development, Federal Housing Administration or guaranteed by the United States Secretary of Veterans Affairs for the United States, or its successor.

(c) A mortgage loan that is held by a life and health insurer under 3 AAC 21.206(f) or acquired under this section and that is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the National Association of Insurance Commissioners accounting practices and procedures manual continues to qualify as a mortgage loan under 3 AAC 21.201 - 3 AAC 21.399.

(d) A credit lease transaction that does not qualify for investment under 3 AAC 21.236 need not comply with a requirement of (a) of this section if

(1) it includes a loan amortized over the initial fixed lease term at least in an amount sufficient so that the loan balance at the end of the lease term does not exceed the original appraised value of the real estate;

(2) the lease payments cover or exceed the total debt service over the life of the loan;

(3) a tenant or its affiliated entity whose rated credit instruments are rated one or two by the securities valuation office or have an equivalent rating from a nationally recognized statistical rating organization, has a full faith and credit obligation to make the lease payments;

(4) the life and health insurer holds or is the beneficial holder of a first lien mortgage on the real estate;

(5) the expenses of the real estate, other than exterior, structural, parking, heating, ventilation, and air conditioning replacement expenses, are passed through to the tenant, unless annual escrow contributions from cash flows derived from the lease payments cover the expense shortfall; and

(6) a perfected assignment exists of the rent due under the lease to or for the benefit of the life and health insurer.

(e) A life and health insurer may acquire, manage, and dispose of real estate situated in a domestic jurisdiction either directly or indirectly through a limited partnership interest or general partnership interest not otherwise prohibited in 3 AAC 21.216, a joint venture, the stock of an investment subsidiary, a membership interest in a limited liability company, a trust certificate, or another similar instrument, subject to the following:

(1) the real estate must be income-producing or intended for improvement or development for an investment purpose under an existing plan of improvement or development, in which case the real estate is considered to be income-producing;

(2) the real estate may be subject to a mortgage, lien, or other encumbrance, the amount of which must be deducted, to the extent that the obligations secured by the mortgage, lien, or encumbrance is without recourse to the life and health insurer, from the amount of the investment of the life and health insurer in the real estate for purposes of determining compliance with (g)(2) and (3) of this section.

(f) A life and health insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the business operations of the life and health insurer or its affiliates. For purposes of this subsection,

(1) real estate acquired may

(A) include excess space for rent to others if the excess space, valued at its fair market value, would otherwise be a permitted investment under (e) of this section and is so qualified by the life and health insurer; and

(B) be subject to a mortgage, lien, or other encumbrance, the amount of which must be deducted, to the extent that the obligation secured by the mortgage, lien, or encumbrance is without recourse to the insurer, from the amount of the investment of the life and health insurer in the real estate for purposes of determining compliance with (h) of this section; and

(2) business operations

(A) include home office, branch office, and field office operations; and

(B) do not include operations on that portion of real estate used for the direct provision of health care services by an accident and health insurer; a life and health insurer may acquire real estate used for the direct provision of health care services under (e) of this section.

(g) A life and health insurer may not acquire an investment

(1) under (a) - (d) of this section if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the life and health insurer under (a) - (d) of this section would exceed

(A) one percent of the life and health insurer's admitted assets in mortgage loans covering any one secured location;

(B) one-quarter of one percent of the life and health insurer's admitted assets in construction loans covering any one secured location; or

(2) under (e) of this section if, as a result of and after giving effect to the investment and any outstanding guarantees made by the life and health insurer in connection with the investment, the aggregate amount of investments then held by the life and health insurer under (e) of this section plus the guarantees then outstanding would exceed

(A) one percent of the life and health insurer's admitted assets in one parcel or group of contiguous parcels of real estate; however, the limitation in this subparagraph does not apply to that portion of real estate used for the direct provision by an accident and health insurer of health care services, including hospitals, medical clinics, medical professional buildings, or other health facilities used for the purpose of providing health services;

(B) 15 percent of the life and health insurer's admitted assets in the aggregate, but not more than five percent of its admitted assets as to properties that are to be improved or developed; or

(C) for an accident and health insurer, the lesser of 15 percent of the accident and health insurer's admitted assets or 40 percent of the accident and health insurer' s policyholder surplus; or

(3) under (a) - (e) of this section if, as a result of and after giving effect to the investment and any guarantees the life and health insurer has made in connection with the investment, the aggregate amount of all investments then held by the life and health insurer under (a) - (e) of this section plus the guarantees then outstanding would exceed 45 percent of the life and health insurer's admitted assets; however, a life and health insurer may exceed the limitation in this paragraph by not more than 30 percent of the life and health insurer's admitted assets if

(A) that increased amount is invested only in residential mortgage loans;

(B) the life and health insurer has not more than 10 percent of its admitted assets invested in mortgage loans other than residential mortgage loans;

(C) the loan-to-value ratio of each residential mortgage loan does not exceed 60 percent at the time the mortgage loan is qualified under this paragraph and the fair market value is supported by an appraisal not more than two years old prepared by an independent appraiser;

(D) a single mortgage loan qualified under this paragraph does not exceed one-half of one percent of the life and health insurer's admitted assets;

(E) the life and health insurer files with the director a plan that results in a portfolio of residential mortgage loans that is sufficiently geographically diversified, and the director approves the plan; and

(F) the life and health insurer agrees to file annually with the director records that demonstrate that its portfolio of residential mortgage loans is geographically diversified under the plan.

(h) The limitations of 3 AAC 21.231 do not apply to a life and health insurer's acquisition of real estate under (f) of this section. A life and health insurer may not acquire real estate under (f) of this section if, as a result of and after giving effect to the acquisition, the aggregate amount of real estate then held by the life and health insurer under (f) of this section would exceed 10 percent of the life and health insurer's admitted assets, unless the director gives prior written permission, upon finding the acquisition consistent with the purposes of 3 AAC 21.201 - 3 AAC 21.399 as stated in 3 AAC 21.201, for the insurer to acquire additional amounts of real estate under (f) of this section.

(i) For purposes of 3 AAC 21.201 - 3 AAC 21.399, real estate includes a leasehold estate only if it has an unexpired term, including renewal options exercisable at the option of the lessee, extending beyond the scheduled maturity date of the obligation that is secured by a mortgage on the leasehold estate by a period equal to at least 20 percent of the original term of the obligation or 10 years, whichever is greater.

History: Eff. 12/28/2001, Register 160

Authority: AS 21.06.090

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